FIN 461 STUDY GUIDE+QUESTIONS WITH
100% VERIFIED ANSWERS!!
Debt to equity ratio
•Measures
-extent of the firm's financing with debt
-riskiness of capital structure
Total Liabilities / Stockholder's Equity
Times interest earned
•Indicates how well operating earnings cover fixed interest expenses
•Can be misleading depending on cash flow
Operating Profit / Interest Expense
Cash Interest Coverage
•Measures how many times interest payments can be covered by cash flow from
operations before interest and taxes
CFO + INterest Paid + Taxes Paid / Interest Paid
Cash Flow Adequacy
•Defined differently by analysts
•Measures ability to cover capital expenditures, long-term debt payments, and dividends
CFO / CAPEX + Debt repayments+ dividends paid
Profitability Ratios
,•Measure the overall performance of a firm and its efficiency in managing assets, liabilities,
and equity
•Include
-Gross Profit Margin
-Operating Profit Margin
-Net Profit Margin
-Cash Flow Margin
-Return on Total Assets (R O A)
-Return on Equity (R O E)
Cash Return on Assets
Gross Profit Margin
•Measures ability to
-control costs of inventories or manufacturing
-pass along price increases through sales
•Represents ability to translate sales dollars into profits
Gross Profit / net sales
Operating Profit Margin
•Measures overall operating efficiency
•Incorporates all expenses associated with ordinary business activities
•Represents ability to translate sales dollars into profits
Operating Profit / net sales
Net profit margin
•Measures profitability after consideration of all revenue and
expense •Represents ability to translate sales dollars into profits
, Net Earnings/ Net sales
Cash flow margin
Measures ability to translate sales into cash
CFO / Net sales
ROA or ROI
•Measures overall efficiency in managing total investment in assets
•Indicates amount of profit earned relative to the level of investment in total assets
Net earnings / total assets
ROE
•Measures overall efficiency in generating return to shareholders
•Calculated as return on common equity if a firm has preferred stock outstanding
Net earnings / Stockholder's Equity
Cash Return on Assets
•Offers a useful comparison to return on investment
•Measures cash-generating ability of assets
CFO / Total Assets
market ratios
•Measure
-returns to stockholders
-value the marketplace puts on a company's
stock •Significant impact on stock price changes
100% VERIFIED ANSWERS!!
Debt to equity ratio
•Measures
-extent of the firm's financing with debt
-riskiness of capital structure
Total Liabilities / Stockholder's Equity
Times interest earned
•Indicates how well operating earnings cover fixed interest expenses
•Can be misleading depending on cash flow
Operating Profit / Interest Expense
Cash Interest Coverage
•Measures how many times interest payments can be covered by cash flow from
operations before interest and taxes
CFO + INterest Paid + Taxes Paid / Interest Paid
Cash Flow Adequacy
•Defined differently by analysts
•Measures ability to cover capital expenditures, long-term debt payments, and dividends
CFO / CAPEX + Debt repayments+ dividends paid
Profitability Ratios
,•Measure the overall performance of a firm and its efficiency in managing assets, liabilities,
and equity
•Include
-Gross Profit Margin
-Operating Profit Margin
-Net Profit Margin
-Cash Flow Margin
-Return on Total Assets (R O A)
-Return on Equity (R O E)
Cash Return on Assets
Gross Profit Margin
•Measures ability to
-control costs of inventories or manufacturing
-pass along price increases through sales
•Represents ability to translate sales dollars into profits
Gross Profit / net sales
Operating Profit Margin
•Measures overall operating efficiency
•Incorporates all expenses associated with ordinary business activities
•Represents ability to translate sales dollars into profits
Operating Profit / net sales
Net profit margin
•Measures profitability after consideration of all revenue and
expense •Represents ability to translate sales dollars into profits
, Net Earnings/ Net sales
Cash flow margin
Measures ability to translate sales into cash
CFO / Net sales
ROA or ROI
•Measures overall efficiency in managing total investment in assets
•Indicates amount of profit earned relative to the level of investment in total assets
Net earnings / total assets
ROE
•Measures overall efficiency in generating return to shareholders
•Calculated as return on common equity if a firm has preferred stock outstanding
Net earnings / Stockholder's Equity
Cash Return on Assets
•Offers a useful comparison to return on investment
•Measures cash-generating ability of assets
CFO / Total Assets
market ratios
•Measure
-returns to stockholders
-value the marketplace puts on a company's
stock •Significant impact on stock price changes
